10-Q 1 aldx-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36332

ALDEYRA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

20-1968197

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

131 Hartwell Avenue, Suite 320

 

 

Lexington, MA

 

02421

(Address of principal executive offices)

 

(Zip Code)

 

(781) 761-4904

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ALDX

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of April 30, 2024, there were 59,414,489 shares of the registrant’s common stock issued and outstanding.

 

 

 


 

Aldeyra Therapeutics, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2024

INDEX

 

 

Page

PART I – FINANCIAL INFORMATION

ITEM 1.

Condensed Consolidated Financial Statements:

3

Consolidated Balance Sheets at March 31, 2024 (Unaudited) and December 31, 2023

3

Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (Unaudited)

4

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024 and 2023 (Unaudited)

5

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (Unaudited)

6

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

28

ITEM 4.

Controls and Procedures

28

PART II – OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

29

ITEM 1A.

Risk Factors

29

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

ITEM 3.

Defaults Upon Senior Securities

76

ITEM 4.

Mine Safety Disclosures

76

ITEM 5.

Other Information

76

ITEM 6.

Exhibits

77

Signatures

78

 

2


 

Part I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

 

 

 

 

2024

 

 

December 31,

 

 

 

(unaudited)

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,491,900

 

 

$

142,823,016

 

Cash equivalent - reverse repurchase agreements

 

 

50,000,000

 

 

 

 

Marketable securities

 

 

30,545,450

 

 

 

 

Prepaid expenses and other current assets

 

 

7,808,596

 

 

 

4,987,317

 

Total current assets

 

 

140,845,946

 

 

 

147,810,333

 

Right-of-use assets

 

 

451,867

 

 

 

510,814

 

Fixed assets, net

 

 

4,079

 

 

 

5,764

 

Total assets

 

$

141,301,892

 

 

$

148,326,911

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

280,299

 

 

$

1,338,057

 

Accrued expenses

 

 

5,944,419

 

 

 

5,536,464

 

Current portion of debt

 

 

15,204,698

 

 

 

15,146,546

 

Operating lease liabilities

 

 

247,021

 

 

 

239,183

 

Total current liabilities

 

 

21,676,437

 

 

 

22,260,250

 

Deferred collaboration revenue, long-term

 

 

6,000,000

 

 

 

6,000,000

 

Operating lease liabilities, long-term

 

 

206,014

 

 

 

271,631

 

Total liabilities

 

 

27,882,451

 

 

 

28,531,881

 

Commitments and contingencies (Notes 3, 9, & 14)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 15,000,000 shares authorized, none
   issued and outstanding

 

 

 

 

 

 

Common stock, voting, $0.001 par value; 150,000,000 authorized and
  
59,414,489 and 59,195,951 shares issued and outstanding, respectively

 

 

59,415

 

 

 

59,196

 

Additional paid-in capital

 

 

515,704,325

 

 

 

513,994,982

 

Accumulated other comprehensive loss

 

 

(3,029

)

 

 

 

Accumulated deficit

 

 

(402,341,270

)

 

 

(394,259,148

)

Total stockholders’ equity

 

 

113,419,441

 

 

 

119,795,030

 

Total liabilities and stockholders’ equity

 

$

141,301,892

 

 

$

148,326,911

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

6,183,508

 

 

$

11,235,861

 

General and administrative

 

 

3,210,357

 

 

 

5,567,416

 

Loss from operations

 

 

(9,393,865

)

 

 

(16,803,277

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

1,810,269

 

 

 

1,678,885

 

Interest expense

 

 

(498,526

)

 

 

(491,287

)

Total other income, net

 

 

1,311,743

 

 

 

1,187,598

 

Net loss

 

$

(8,082,122

)

 

$

(15,615,679

)

Net loss per share - basic and diluted

 

$

(0.14

)

 

$

(0.27

)

Weighted average common shares outstanding - basic and diluted

 

 

59,414,489

 

 

 

58,791,603

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

Net loss

 

$

(8,082,122

)

 

$

(15,615,679

)

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Net unrealized (loss) on marketable securities

 

 

(3,029

)

 

 

 

 

Reclassification of losses to net loss

 

 

 

 

 

103,938

 

 

Total other comprehensive (loss) income

 

$

(3,029

)

 

$

103,938

 

 

Comprehensive loss

 

$

(8,085,151

)

 

$

(15,511,741

)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

 

 

Stockholders' Equity

 

 

 

Common Stock

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Other
Comprehensive
Income/(Loss),
net of tax

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

Balance, December 31, 2023

 

 

59,195,951

 

 

$

59,196

 

 

$

513,994,982

 

 

$

 

 

$

(394,259,148

)

 

$

119,795,030

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,691,371

 

 

 

 

 

 

 

 

 

1,691,371

 

Issuance of common stock, employee
   stock purchase plan

 

 

6,097

 

 

 

7

 

 

 

18,184

 

 

 

 

 

 

 

 

 

18,191

 

Issuance of common stock, vested
   restricted stock awards

 

 

212,441

 

 

 

212

 

 

 

(212

)

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3,029

)

 

 

 

 

 

(3,029

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,082,122

)

 

 

(8,082,122

)

Balance, March 31, 2024

 

 

59,414,489

 

 

$

59,415

 

 

$

515,704,325

 

 

$

(3,029

)

 

$

(402,341,270

)

 

$

113,419,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

58,560,078

 

 

$

58,560

 

 

$

507,770,045

 

 

$

(103,938

)

 

$

(356,716,638

)

 

$

151,008,029

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,694,366

 

 

 

 

 

 

 

 

 

1,694,366

 

Issuance of common stock, employee
   stock purchase plan

 

 

16,272

 

 

 

17

 

 

 

52,542

 

 

 

 

 

 

 

 

 

52,559

 

Issuance of common stock, vested
   restricted stock awards

 

 

215,253

 

 

 

215

 

 

 

(215

)

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

103,938

 

 

 

 

 

 

103,938

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,615,679

)

 

 

(15,615,679

)

Balance, March 31, 2023

 

 

58,791,603

 

 

$

58,792

 

 

$

509,516,738

 

 

$

 

 

$

(372,332,317

)

 

$

137,243,213

 

 

6


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(8,082,122

)

 

$

(15,615,679

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

1,548,837

 

 

 

4,190,356

 

Non-cash interest expense

 

 

58,152

 

 

 

87,160

 

Net amortization of premium on marketable securities

 

 

(171,859

)

 

 

(14,542

)

Depreciation and amortization expense

 

 

60,632

 

 

 

66,972

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,821,279

)

 

 

3,733,114

 

Accounts payable

 

 

(1,057,758

)

 

 

296,060

 

Accrued expenses and other liabilities

 

 

492,710

 

 

 

(2,187,259

)

Net cash used in operating activities

 

 

(9,972,687

)

 

 

(9,443,818

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of marketable securities

 

 

(30,376,620

)

 

 

 

Maturities of marketable securities

 

 

 

 

 

30,000,000

 

Net cash (used in) provided by investing activities

 

 

(30,376,620

)

 

 

30,000,000

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from employee stock purchase plan

 

 

18,191

 

 

 

52,559

 

Net cash provided by financing activities

 

 

18,191

 

 

 

52,559

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(40,331,116

)

 

 

20,608,741

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

142,823,016

 

 

 

144,419,364

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

102,491,900

 

 

$

165,028,105

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for interest

 

$

439,833

 

 

$

397,396

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

ALDEYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.
NATURE OF BUSINESS

Aldeyra Therapeutics, Inc., together with its wholly-owned subsidiaries (the “Company” or “Aldeyra”), a Delaware corporation, is a clinical-stage biotechnology company devoted to discovering innovative therapies designed to treat immune-mediated and metabolic diseases.

The Company’s principal activities to date include research and development activities along with related general business planning, including raising capital.

2.
BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on March 7, 2024 (2023 Annual Report).

The financial information as of March 31, 2024, and the three months ended March 31, 2024 and 2023, respectively, is unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for the fair presentation of financial position, results of operations, and cash flows at the dates and for the periods presented, have been included. The balance sheet data as of December 31, 2023 was derived from audited consolidated financial statements. The results of the Company’s operations for any interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

 

Based on its current operating plan, the Company believes that its cash, cash equivalents and marketable securities will be sufficient to fund the Company's currently projected operating expenses and debt obligations for at least the next 12 months from the date the financial statements are issued. The Company’s assessment of its liquidity and capital resources includes an estimate of the financial impacts of these changes. The Company has based its projections of operating capital requirements on its current operating plan, which includes several assumptions that may prove to be incorrect, and the Company may use all of its available capital resources sooner than the Company expects. The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities and regulatory activities; commence or continue ongoing commercialization activities, including manufacturing, sales, marketing and distribution, for any of its product candidates for which the Company may receive marketing approval; or conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional funding, it could be forced to delay, reduce, or eliminate its research and development programs and its reproxalap commercialization efforts, whether alone or with others.

Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products to market, which is critical to the realization of its business plan and the future operations of the Company.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, including fair value estimates for investments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting periods. The Company’s management evaluates its estimates and assumptions on an ongoing basis. Management’s most significant estimates in the Company’s condensed consolidated financial statements include, but are not limited to, deferred and accrued research and development costs, stock-based compensation, and accounting for income taxes and related valuation allowance. Although these estimates and assumptions are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

8


 

Summary of Significant Accounting Policies

There were no changes to significant accounting policies during the three months ended March 31, 2024, as compared to those identified in the 2023 Annual Report.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses, including for single reportable segment entities. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the disclosure requirements related to this new standard.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the disclosure requirements related to this new standard.

3.
Helio Vision Acquisition

On January 28, 2019 (Closing Date), the Company acquired Helio Vision, Inc. (Helio). As a result of the acquisition, the Company issued an aggregate of 1,407,006 shares of common stock to the former securityholders and an advisor of Helio, including 246,562 shares issued in January 2021, pursuant to the terms of the acquisition agreement. In addition, the Company, subject to the conditions of the acquisition agreement, is contingently obligated to make additional payments to the former securityholders of Helio as follows: (a) $10.0 million of common stock following approval by the FDA of a new drug application (NDA) for the prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the Closing Date; and (b) $2.5 million of common stock following FDA approval of an NDA for an indication (other than proliferative vitreoretinopathy or a substantially similar label) prior to the 12th anniversary of the Closing Date (the shares of common stock issuable pursuant to the preceding clauses (a) and (b) are referred to herein as the Milestone Shares), provided that in no event shall the Company be obligated to issue more than an aggregate of 5,248,885 shares of common stock in connection with the Helio acquisition. Additionally, in the event of certain change of control or divestitures by the Company, certain former convertible noteholders of Helio will be entitled to a tax gross-up payment in an amount not to exceed $1.0 million in the aggregate.

The Company determined that liability accounting is not required for the Milestone Shares under FASB ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480). The Company also determined that the Milestone Shares meet the scope exception as a derivative under FASB ASC Topic 815, Derivatives and Hedging (ASC 815), from inception of the Milestone Shares through March 31, 2024. Accordingly, the Milestone Shares are evaluated under FASB ASC Topic 450, Contingencies (ASC 450) and the Company will record a liability related to the Milestone Shares if the milestones are achieved, and the obligation to issue the Milestone Shares becomes probable. At such time, the Company will record the cost of the Milestone Shares issued to the Helio founders as a compensation expense and to the other former securityholders of Helio as an in-process research and development (IPR&D) expense if there is no alternative future use. No milestones related to the remaining Milestone Shares are considered probable of being achieved as of March 31, 2024.

9


 

4.
NET LOSS PER SHARE

For the three months ended March 31, 2024 and 2023, diluted weighted average common shares outstanding is equal to basic weighted average common shares due to the Company’s net loss position.

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact:

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Options to purchase common stock

 

 

7,883,793

 

 

 

6,432,046

 

Nonvested restricted stock units

 

 

732,056

 

 

 

1,208,100

 

Total of common stock equivalents

 

 

8,615,849

 

 

 

7,640,146

 

 

5.
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

At March 31, 2024, cash, cash equivalents, and marketable securities were comprised of:

 

 

 

Carrying
Amount

 

 

Unrecognized
Gain

 

 

Unrecognized
Loss

 

 

Estimated
Fair Value

 

 

Cash and Cash
Equivalents

 

 

Current
Marketable
Securities

 

Cash

 

$

17,560,591

 

 

$

 

 

$

 

 

$

17,560,591

 

 

$

17,560,591

 

 

$

 

Money market funds

 

 

34,931,309

 

 

 

 

 

 

 

 

 

34,931,309

 

 

 

34,931,309

 

 

 

 

Reverse repurchase agreements

 

 

50,000,000

 

 

 

 

 

 

 

 

 

50,000,000

 

 

 

50,000,000

 

 

 

 

Total cash and cash equivalents

 

$

102,491,900

 

 

$

 

 

$

 

 

$

102,491,900

 

 

$

102,491,900

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

30,548,479

 

 

 

546

 

 

 

(3,575

)

 

 

30,545,450

 

 

 

 

 

 

30,545,450

 

Available for sale marketable securities (1)

 

 

30,548,479

 

 

 

546

 

 

 

(3,575

)

 

 

30,545,450

 

 

 

 

 

 

30,545,450

 

Total cash, cash equivalents, and current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

$

102,491,900

 

 

$

30,545,450

 

 

(1)
Available for sale debt securities are reported at fair value with unrealized gains and losses reported net of taxes, if material, in other comprehensive income.

 

The contractual maturities of all cash equivalents and available for sale securities were less than one year at March 31, 2024.

 

At December 31, 2023, cash, and cash equivalents were comprised of:

 

 

 

Carrying
Amount

 

 

Estimated
Fair Value

 

 

Cash and Cash
Equivalents

 

 

Cash

 

$

128,510,451

 

 

$

128,510,451

 

 

$

128,510,451

 

 

Money market funds

 

 

14,312,565

 

 

 

14,312,565

 

 

 

14,312,565

 

 

Total cash and cash equivalents

 

$

142,823,016

 

 

$

142,823,016

 

 

$

142,823,016

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no marketable securities held at December 31, 2023.

10


 

6.
FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820, Fair Value Measurements, establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents information about the Company’s assets measured at fair value at March 31, 2024 and December 31, 2023:

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

34,931,309

 

 

$

 

 

$

 

 

$

34,931,309

 

U.S. government agency securities (b)

 

 

30,545,450

 

 

 

 

 

 

 

 

 

30,545,450

 

Reverse repurchase agreements (c)

 

 

 

 

 

50,000,000

 

 

 

 

 

 

50,000,000

 

Total assets at fair value

 

$

65,476,759

 

 

$

50,000,000

 

 

$

 

 

$

115,476,759

 

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

14,312,565

 

 

$

 

 

$

 

 

$

14,312,565

 

Total assets at fair value

 

$

14,312,565

 

 

$

 

 

$

 

 

$

14,312,565

 

 

a)
Money market funds included in cash and cash equivalents in the consolidated balance sheets, are valued at quoted market prices in active markets.
b)
U.S. government agency securities are valued based on observable market prices in active markets.
c)
Reverse repurchase agreements are recorded at fair market value, which are determined based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable.

There were no liabilities measured at fair value at March 31, 2024 or December 31, 2023.

Financial instruments, including clinical trial prepayments to contract research organizations and accounts payable, are carried in the condensed consolidated financial statements at amounts that approximate their fair value based on the short maturities of those instruments. The carrying amount of the Company’s term loan under the Hercules Credit Facility (as defined in Note 9) approximates market rates currently available to the Company.

11


 

7.
PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at March 31, 2024 and December 31, 2023 were:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Deferred research and development expenses

 

$

7,318,550

 

 

$

4,463,783

 

Prepaid insurance expenses

 

 

133,215

 

 

 

340,388

 

Miscellaneous prepaid expenses and other current assets

 

 

356,831

 

 

 

183,146

 

Total prepaid expenses and other current assets

 

$

7,808,596

 

 

$

4,987,317

 

 

8.
ACCRUED EXPENSES

Accrued expenses at March 31, 2024 and December 31, 2023 were:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued compensation

 

$

2,911,777

 

 

$

3,087,937

 

Accrued research and development expenses

 

 

1,766,283

 

 

 

1,687,327

 

Accrued other expenses

 

 

1,266,359

 

 

 

761,200

 

Total accrued expenses

 

$

5,944,419

 

 

$

5,536,464

 

 

9.
CREDIT FACILITY

The Company’s current and long-term debt obligation consists of amounts the Company is obligated to repay under its credit facility with Hercules Capital, Inc. (Hercules). In March 2019, the Company entered into a Loan and Security Agreement (Loan and Security Agreement or Hercules Credit Facility) with Hercules and several banks and other financial institutions or entities, from time-to-time parties thereto (collectively, referred to herein as Lender), providing for a term loan of up to $60.0 million, subject to the satisfaction of certain conditions contained therein, that is secured by a lien covering all of the Company’s assets, other than the Company’s intellectual property. The Loan and Security Agreement provided for (i) an initial term loan advance of up to $5.0 million at the Company’s option, which expired unutilized on April 15, 2019; (ii) three additional term loan advances of up to $15.0 million each, at the Company’s option, available to the Company upon the occurrence of certain pre-specified funding conditions prior to September 30, 2019 (2019 Tranche), March 31, 2020 (2020 Tranche), and March 31, 2021 (2021 Tranche); and (iii) a final additional term loan advance (Fourth Loan Tranche) of up to $10.0 million prior to December 31, 2021, at the Company’s option, subject to approval by the Lender’s investment committee. The 2019 Tranche was drawn down in full by the Company in September 2019 and the 2020 Tranche and 2021 Tranche expired unutilized prior to the Company satisfying the funding conditions for such tranche. On April 20, 2021, the Company entered into the First Amendment to the Loan and Security Agreement (First Amendment). The First Amendment, among other things, (i) increased the Fourth Loan Tranche from $10.0 million to $20.0 million and extended the deadline for drawing down the Fourth Loan Tranche to July 1, 2022; (ii) lowered the variable per annum rate of interest on borrowings under the Loan and Security Agreement from the greater of (a) 9.10% and (b) the prime rate (as reported in the Wall Street Journal or any successor publication thereto) plus 3.10% to the greater of (x) the Prime Rate (as defined therein) plus 3.10% or (y) 8.60%; (iii) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are required from May 1, 2021 to July 1, 2022; and (iv) following the satisfaction of certain conditions, which conditions were satisfied in April 2021, further extended the expiration of the interest-only period and the deadline for drawing down the Fourth Loan Tranche to May 1, 2023. Repayment of the aggregate outstanding principal balance of the term loan, in monthly installments, commences upon expiration of the interest-only period and continues through October 1, 2023 (Maturity Date). The First Amendment was determined to be a modification in accordance with FASB ASC Topic 470, Debt and did not result in extinguishment.

On December 22, 2022, the Company entered into the Second Amendment to the Loan and Security Agreement (Second Amendment), which became effective as of December 31, 2022 (Second Amendment Effective Date). The Second Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2023 to May 1, 2024; (ii) extended the Maturity Date from October 1, 2023 to October 1, 2024; (iii) extended the availability of the Fourth Loan Tranche commitment of $20 million from May 1, 2023 to May 1, 2024; and (iv) amended the Prepayment Charge (as defined therein) to equal 0.75% of the amount prepaid during the 12-month period following the Second Amendment Effective Date, and 0% thereafter. The ability to draw the Fourth Loan Tranche remains conditioned on approval by the Lenders’ investment committee. In addition, a supplemental end of term charge of $292,500 (Supplemental End of Term Charge) shall be due on the earlier of (A) the Maturity Date, as amended, or (B) repayment of the aggregate amount of advances under the Loan and Security Agreement. The initial end of term charge of

12


 

$1,042,500 (End of Term Charge) was paid on October 2, 2023. The Second Amendment was determined to be a modification in accordance with FASB ASC Topic 470, Debt and did not result in extinguishment.

On April 29, 2024, the Company entered into the Third Amendment to the Loan and Security Agreement (Third Amendment). The Third Amendment, among other things, extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2024 to October 1, 2024.

 

In connection with the Hercules Credit Facility, the Company incurred a commitment charge of $25,000, transaction costs of $273,186, a fee of $375,000 upon closing, the End of Term Charge, which was paid in October 2023, and the Company will be required to pay the Supplemental End of Term Charge. The fees and transaction costs are amortized to interest expense from 2019 through the Maturity Date using the effective interest method. The End of Term Charge was amortized to interest expense from 2019 through October 2023, and the Supplemental End of Term Charge is amortized to interest expense from December 2022 through the Maturity Date, both using the effective interest method. The effective interest rate was 13.2% at March 31, 2024. At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus all fees and other amounts due under the Loan and Security Agreement as of the date of such prepayment.

As of March 31, 2024 an aggregate of $35 million, subject to the terms and conditions of the Loan and Security Agreement, may be made available to the Company for borrowing, $15 million of which has been funded.

Long-term debt consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Term loan payable

 

$

15,000,000

 

 

$

15,000,000

 

Supplemental end of term charge

 

 

221,000

 

 

 

173,646

 

Unamortized debt issuance costs

 

 

(16,302

)

 

 

(27,100

)

Less: current portion

 

 

(15,204,698

)

 

 

(15,146,546

)

Total long-term debt

 

$

 

 

$

 

 

Future principal payments, including the Supplemental End of Term Charge, are as follows for the years ending December 31:

 

2024

 

 

15,292,500

 

Total

 

$

15,292,500

 

 

The Loan and Security Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company. As of March 31, 2024, the Company was in compliance with all covenants of the Hercules Credit Facility in all material respects. In addition, subject to the terms of the Loan and Security Agreement, the Company granted the Lender the right to purchase up to an aggregate of $2.0 million of the Company’s equity securities, or instruments exercisable for or convertible into equity securities, sold to investors in financings upon the same terms and conditions afforded to such other investors.

10.
STOCKHOLDERS’ EQUITY

 

In March 2021, the Company entered into an Open Market Sales Agreement SM with Jefferies LLC (Jefferies), as sales agent (2021 Jefferies Sales Agreement), under which the Company had the ability to offer and sell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $100.0 million. As of March 31, 2024, no sales had been made pursuant to the 2021 Jefferies Sales Agreement and no additional shares of common stock may be sold under the 2021 Jefferies Sales Agreement as of April 24, 2024.

11.
INCOME TAXES

No current or deferred tax provision expenses for federal and state income taxes have been recorded as the Company has incurred losses since inception for tax purposes. Deferred income taxes reflect the net tax effects of temporary differences

13


 

between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

In assessing the realizability of net deferred taxes in accordance with Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), the Company considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. Based on the weight of available evidence, primarily the incurrence of net losses since inception, anticipated net losses in the near future, reversals of existing temporary differences, and expiration of various federal and state attributes, the Company does not consider it more likely than not that some or all of the net deferred taxes will be realized. Accordingly, a 100% valuation allowance has been applied against net deferred tax assets.

Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended (Section 382 and 383), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs) and certain other tax assets (tax attributes) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Transactions involving the Company’s common stock, within the testing period, even those outside the Company’s control, such as purchases or sales by investors, within the testing period could result in an ownership change. A limitation on the Company’s ability to utilize some or all its NOLs or credits could have a material adverse effect on the Company’s results of operations and cash flows. Prior to December 31, 2021, the Company believes it underwent four ownership changes. However, management believes that its aggregate Section 382 and 383 limitation (including the additional limitation for recognized “built-in-gains”) is sufficient so that no current impairment of its pre-ownership change tax attributes is required. The Company does not believe an ownership change has occurred from December 31, 2021, through March 31, 2024, based on a review of its equity history during that period. Any future ownership changes, including those resulting from the Company’s future financing activities, may cause its existing tax attributes to incur additional limitations.

As of March 31, 2024, the Company is subject to tax in the U.S. (Federal and Massachusetts). The Company is open to examination for the tax years ended December 31, 2023, 2022, 2021, and 2020. In addition, any loss years remain open to the extent that losses are available for carryover to future years.

The Company accounts for uncertain tax positions pursuant to ASC 740-10 which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. Accordingly, in the provision for income taxes, the Company recognizes interest accrued related to unrecognized tax benefits and penalties; however, management is currently unaware of any uncertain tax positions. As a result, the Company does not have any liabilities recorded including interest or penalties for uncertain tax positions.

The Inflation Reduction Act (IRA) was enacted on August 16, 2022. Based on review of the IRA, the Company does not expect any impact to its tax provision. In particular, the Company does not expect to pay Corporate Alternative Minimum Tax (CAMT) in the next few years based on its projected losses. The IRA introduces a 15% CAMT for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the tax year exceeds $1 billion starting in 2023.

12.
STOCK-BASED COMPENSATION

The Company approved the 2013 Equity Incentive Plan in October 2013, which was amended in June 2016 and June 2018, (Amended 2013 Plan). The Amended 2013 Plan provided for the granting of stock options, restricted stock units (RSU), stock appreciation rights, and stock units to certain employees, members of the board of directors and consultants of the Company.

In May 2023, the Company's Board of Directors approved the 2023 Equity Incentive Plan (2023 Equity Plan) to replace the Amended 2013 Plan. On June 30, 2023, the Company's stockholders approved the 2023 Equity Plan at the Company's 2023 annual meeting of stockholders. Pursuant to the 2023 Equity Plan, the Company will not make any further grants under the Amended 2013 Plan following June 30, 2023, though awards previously granted under the Amended 2013 Plan will remain outstanding. The 2023 Equity Plan is effective for a period of ten years after June 30, 2023, and a total of 5,450,000 shares of the Company’s common stock, in addition to shares of the Company’s common stock that are subject to awards granted under the Amended 2013 Plan that are outstanding as of such date and that are subsequently forfeited, cancelled, or expire before being exercised or settled in full, are authorized for issuance under the 2023 Equity Plan. As of March 31, 2024, there were 3,692,753 shares of common stock available for grant under the 2023 Equity Plan.

14


 

In 2022 the Company granted cash awards under its Management Cash Incentive Plan, as amended (the Management Cash Incentive Plan). The Management Cash Incentive Plan provides its participants with the opportunity to earn cash incentive awards for the achievement of goals relating to the performance of the Company and was adopted in 2016. The cash awards vest in four annual installments from the date of grant based on continued service and entitle the employees to receive a cash payment, on the earlier of (i) four years from the date of grant or (ii) a change of control, equal in value to the amount by which the then value of the Company’s common stock exceeds the base value. As of March 31, 2024, $0.1 million was accrued as compensation expense for vested cash awards. There was no unrecognized expense as of March 31, 2024.

In 2022, the Company granted performance cash settled bonus awards (CSBUs) under its Management Cash Incentive Plan. As a result of the acceptance by the FDA of the Company's submission of an NDA for reproxalap (Performance Criteria), the awards will vest in four annual installments from the date of grant based on continued service, and entitle the employees to receive a cash payment for each vested CSBU, on the earlier of (i) four years from the date of grant or (ii) a change of control, equal in value of the closing price per share of the Company's common stock on the Nasdaq Capital Market on the payment date. As of March 31, 2024, $1.6 million was accrued as compensation expense for CSBUs as the Performance Criteria was met in February 2023. There was no unrecognized expense as of March 31, 2024.

The Company recognizes stock-based compensation expense over the requisite service period. The Company's share-based awards are accounted for as equity instruments, except for cash awards and CSBUs, which are accounted for as liabilities. The amounts included in the consolidated statements of operations relating to stock-based compensation associated with the two equity incentive plans, cash awards, and CSBUs are as follows:

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

Research and development expenses

 

 

$

864,184

 

 

$

2,191,368

 

General and administrative expenses

 

 

$

684,653

 

 

$

1,998,988

 

Total stock-based compensation expense

 

 

$

1,548,837

 

 

$

4,190,356

 

 

Stock Options

The table below summarizes activity relating to stock options under the incentive plans for the three months ended March 31, 2024:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Contractual
Term
(Years)

 

 

Aggregate
Intrinsic
Value(a)

 

Outstanding at December 31, 2023

 

 

5,868,816

 

 

$

6.40

 

 

 

6.44

 

 

$

3,996

 

Granted

 

 

2,101,648

 

 

 

3.62

 

 

 

 

 

 

 

Expired

 

 

(55,165

)

 

 

7.68

 

 

 

 

 

 

 

Forfeited

 

 

(31,506

)

 

 

4.49

 

 

 

 

 

 

 

Outstanding at March 31, 2024

 

 

7,883,793

 

 

$

5.66

 

 

 

7.23

 

 

$

 

Exercisable at March 31, 2024

 

 

4,522,334

 

 

$

6.31

 

 

 

5.66

 

 

$

 

 

(a)
The aggregate intrinsic value in this table was calculated on the positive difference, if any, between the closing price per share of the Company’s common stock on March 31, 2024 of $3.27 and the per share exercise price of the underlying options.

 

As of March 31, 2024, unamortized stock-based compensation for stock options outstanding was $10.8 million and is expected to be recognized over a weighted average period of 2.93 years. Total unrecognized compensation cost will be adjusted for future forfeitures, if necessary.

15


 

Restricted Stock Units

The table below summarizes activity relating to restricted stock units (RSUs) for the three months ended March 31, 2024:

 

 

 

Number
of Shares

 

 

Weighted-Average Grant Date Fair Value

 

Outstanding at December 31, 2023

 

 

944,497

 

 

$

5.30

 

Exercised/Released

 

 

(212,441

)

 

 

5.33

 

Outstanding at March 31, 2024

 

 

732,056

 

 

$

5.29

 

 

There were no RSUs granted during the three months ended March 31, 2024. The total grant date fair value of RSUs vested was $1.1 million for the three months ended March 31, 2024. As of March 31, 2024, the outstanding RSUs had unamortized stock-based compensation of $3.2 million with a weighted-average remaining recognition period of 2.29 years and an aggregate intrinsic value of $2.4 million.

Employee Stock Purchase Plan

At March 31, 2024, the Company had 2,928,226 shares available for issuance under the 2016 Employee Stock Purchase Plan (2016 ESPP). A summary of the weighted-average grant-date fair value, and total stock-based compensation expense recognized related to the 2016 ESPP are as follows:

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Weighted-average grant-date fair value per share

$

1.44

 

 

$

2.70

 

Total stock-based compensation expense

$

5,099

 

 

$

17,040

 

 

13.
LEASES

 

The Company currently leases an office used to conduct business. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. In November 2023, the Company entered into a lease amendment that extended the lease by 12 months through December 31, 2024 and contained two options to extend the term of the lease for an additional 12 months each. Each option shall be exercisable, if at all, by giving a nine month written notice to the landlord. In April 2024, the Company extended the option to extend the term of the lease for an additional 12 months into December 2025, which will have no impact on the balance sheet as the option to extend the term of the lease for an additional 12 months was accounted for as of December 31, 2023.

As of March 31, 2024, the Company maintained an unamortized Right-Of-Use asset with a corresponding operating lease liability of approximately $0.5 million based on the present value of the minimum rental payments in accordance with ASC Topic 842, Leases. The weighted average discount rate used for leases as of March 31, 2024 is 9.1%. The weighted average remaining lease term as of March 31, 2024 was 1.75 years. The operating lease expense for the three months ended March 31, 2024 was $70.1 thousand. Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of March 31, 2024 is as follows:

 

2024 remaining total lease payments

 

$

492,096

 

Less: effect of discounting

 

 

(39,061

)

Present value of lease liabilities

 

$

453,035

 

 

 

Current operating lease liabilities

 

$

247,021

 

Non-current operating lease liabilities

 

$

206,014

 

Total

 

$

453,035

 

 

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The Company’s gross future minimum payments under all non-cancelable operating leases as of March 31, 2024, are:

 

Total

2024

2025

2026

2027

Operating lease obligations

$

492,096

$

206,891

$

285,205

$

$

 

14.
COMMITMENTS AND CONTINGENCIES

Guarantees and Indemnifications

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification is for the officer’s or director’s lifetime. Through March 31, 2024, the Company had not experienced any losses related to these indemnification obligations and no material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

In-License Agreements

MEEI Agreement

The Company is developing ADX-2191 pursuant to an Exclusive License Agreement with Massachusetts Eye and Ear Infirmary (MEEI) originally entered into in July 2016 between MEEI and Helio Vision, Inc., as amended, (MEEI Agreement). The Company assumed the MEEI Agreement in connection with its 2019 acquisition of Helio Vision.

Pursuant and subject to the MEEI Agreement, the Company obtained an exclusive, worldwide license from MEEI to develop and commercialize ADX-2191 under certain patents and patent applications, and other licenses to intellectual property (MEEI Patent Rights). The Company has agreed to use commercially reasonable efforts, to develop ADX-2191 and to meet certain specified effort and achievement benchmarks by certain dates.

In consideration for the rights licensed under the MEEI Agreement, Helio Vision issued MEEI a number of shares of its preferred stock and Helio Vision agreed to pay non-creditable non-refundable license maintenance fees to MEEI of $15,000 on each of the second and third anniversary of the MEEI Agreement, $25,000 on each of the fourth and fifth anniversary of the MEEI Agreement and $35,000 on the sixth and each subsequent anniversary of the MEEI Agreement during the term of such agreement. In addition, Helio Vision was obligated to make future sales-dependent milestone payments to MEEI of up to the low seven figures in the aggregate, as well as royalty payments to MEEI at a rate which, as a percentage of net sales, is in the low single digits for products that incorporate or use the MEEI Patent Rights in the United States and as a percentage in the low single digits for products that incorporate or use the MEEI Patent Rights outside the United States. The Company is also obligated under the MEEI Agreement to pay MEEI a percentage of certain sublicense revenue that it receives in connection with entering into any sublicensing arrangements with any third parties, at a percentage rate which tiers downward from low-double digits to mid-single digits based on the date of the sublicense. Following the Company’s acquisition of Helio Vision, the Company became obligated to make any future payments owed under the MEEI Agreement. There is no additional equity consideration issuable under the MEEI Agreement.

The MEEI Agreement will remain in effect until the expiration date of the last to expire patent licensed under the MEEI Agreement. The Company may terminate the MEEI Agreement with timely written notice to MEEI. MEEI has the right to terminate the MEEI Agreement if it, subject to certain specified cure periods, ceases all business operations with respect to licensed products, fails to pay amounts due under the MEEI Agreement, fail to comply with certain due diligence obligations, defaults in the Company's obligation to maintain insurance, one of the Company's officers is convicted of a felony relating to the manufacture, use, sale or importation of licensed products, the Company materially breaches any provisions of the MEEI Agreement or in the event of its insolvency or bankruptcy.

In the event of an early termination of the MEEI Agreement, all rights licensed and developed by the Company under the MEEI Agreement may revert back to MEEI. The Company has agreed to indemnify MEEI for certain claims that may arise under the MEEI Agreement.

Legal Proceedings

On July 31, 2023, a purported stockholder filed a putative class action lawsuit (the Securities Class Action) in the U.S. District Court for the District of Massachusetts, against the Company and certain current and former officers, captioned Juliana Paice v.

17


 

Aldeyra Therapeutics, Inc., et al. (No. 23-cv-11737). On January 2, 2024, the lead plaintiff filed an amended complaint. The lawsuit alleges violations by the defendants of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The plaintiff alleges that the defendants made false or misleading statements or failed to disclose certain information concerning (i) the New Drug Application (NDA) for and the prospects of ADX-2191 for the treatment of primary vitreoretinal lymphoma and (ii) the NDA for and the prospects of reproxalap for the treatment of dry eye disease. The lawsuit seeks, among other things, compensatory damages on behalf of herself and all persons and entities that purchased or otherwise acquired the Company's securities between January 7, 2021, and October 16, 2023, as well as attorneys’ fees and costs. On March 4, 2024, defendants filed a motion to dismiss the amended complaint, and the plaintiff filed its opposition to the motion on April 18, 2024. The Company disputes the plaintiff's claims and intends to vigorously defend the suit. At this time, the Company cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this matter.

On October 25, 2023, a purported stockholder of the Company filed a derivative complaint in Middlesex Superior Court of the Commonwealth of Massachusetts, captioned Evan Leglar v. Todd C. Brady, et al. (No. 2381-cv-02980), against certain of the Company’s executive officers and directors, and naming the Company as a nominal defendant. The derivative complaint alleges, purportedly on behalf of the Company, breaches of fiduciary duty and unjust enrichment claims against all defendants. The claims are based on substantially identical allegations as the complaint in the Securities Class Action. The lawsuit seeks, among other things, an award of damages and restitution in favor of the Company, certain changes to the Company’s corporate governance, and attorneys’ fees and costs. On November 14, 2023, the plaintiff voluntarily dismissed all claims without prejudice.

On March 7, 2024, a purported stockholder of the Company filed a derivative complaint in the U.S. District Court for the District of Massachusetts, captioned Fawaz Al-Jaljouli v. Todd C. Brady, et al. (No. 24-cv-10585), against certain of the Company’s executive officers and directors, and naming the Company as a nominal defendant. The derivative complaint alleges, purportedly on behalf of the Company, breach of fiduciary duty and violations of Section 14(a) of the Securities Exchange Act of 1934. The claims are based on substantially identical allegations as the complaint in the Securities Class Action. The lawsuit seeks, among other things, an award of damages, certain changes to the Company’s corporate governance, and attorneys’ fees and costs. At this time, the Company cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this matter.

In addition, from time to time, the Company is subject to litigation and claims arising in the ordinary course of business but, except as stated above, the Company is not currently a party to any material legal proceedings and the Company is not aware of any pending or threatened legal proceedings against them that the Company believes could have a material adverse effect on the Company's business, operating results, cash flows, or financial condition.

15.
SIGNIFICANT AGREEMENTS

AbbVie Option Agreement

On October 31, 2023 (the Option Agreement Effective Date), the Company entered into an exclusive option agreement (the Option Agreement) with AbbVie Inc. (AbbVie), pursuant to which the Company granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United States to facilitate a collaboration with the Company to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by the Company in the field of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise controlled by the Company in the fields of ophthalmology and immunology before such data is shared with any other third party (the Collaboration Agreement). AbbVie has paid the Company a non-refundable payment of $1 million in consideration of the Option (the Option Payment).

On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise Period Extension) by paying the Company a non-refundable payment of $5 million (the Option Extension Fee). As a result of the Exercise Period Extension, AbbVie may exercise the Option by delivering written notice to the Company at any time during the period following the Option Agreement Effective Date until the earlier of (a) the tenth (10th) business day after the date, if any, that the Company receives approval from the U.S. Food and Drug Administration of the NDA for reproxalap in dry eye disease (the FDA Decision) and (b) the date that is eighteen (18) months after the Option Agreement Effective Date. If the Collaboration Agreement is entered into, the Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.

18


 

As of December 31, 2023, the Company had recognized zero collaboration revenue and $6.0 million of deferred collaboration revenue related to the Option Agreement and Exercise Period Extension. There was no change to the deferred collaboration revenue as of March 31, 2024. The Company concluded, using ASC 606 by analogy for recognition considerations as the Option Agreement was not considered to be a vendor-customer relationship, that the transaction price is $6.0 million (the Transaction Price), and all other amounts are excluded from the Transaction Price as they relate to fees that can only be achieved subsequent to the exercise of the Option. The Transaction Price was allocated to the single unit of account, the Option to enter into a future Collaboration Agreement which is a material right, as the Option Extension Fee and the Option Payment are creditable against the upfront payments payable by AbbVie if the Collaboration Agreement is entered into. The Company concluded that all other performance obligations were immaterial promises in the context of the Option Agreement and did not represent additional units of account. The Company will begin to recognize revenue, if and when the Option is exercised, or when the Option expires.

19


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

Various statements throughout this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as, but not limited to, “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “design,” “might,” “objective,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors which could cause actual results to differ include, but are not limited to:

our plans to develop and commercialize reproxalap, and any other product candidates, if approved;
delay in or failure to obtain regulatory approval of reproxalap or any of our other product candidates, including as a result of the U.S. Food and Drug Administration (FDA) not accepting our regulatory filings or requiring additional clinical trials or data prior to review or approval of such filings;
the likelihood and timing of the FDA’s potential approval of a potential resubmission of the new drug application (NDA) for reproxalap;
the adequacy of the data included in the potential resubmission of the NDA or the supplemental responses to the FDA;
the likelihood and timing of the exercise of the exclusive option (the Option) by AbbVie Inc. (AbbVie) pursuant to the exclusive option agreement with AbbVie;
the ability to maintain regulatory approval of reproxalap or any of our other our product candidates, if received, and the labeling for any approved products;
uncertainty as to our ability to commercialize (alone or with others) and obtain reimbursement for reproxalap or any of our other product candidates following regulatory approval, if any;
the size and growth of the potential markets and pricing for reproxalap or any of our other product candidates following regulatory approval, if any, and the ability to serve those markets;
the rate and degree of market acceptance of any of reproxalap or any of our other product candidates following regulatory approval, if any;
the timing of enrollment, commencement, and completion of our clinical trials;
the timing and success of preclinical studies and clinical trials conducted by us and our development partners;
the risk that prior results, such as signals of safety, activity or durability of effect, observed from preclinical or clinical trials, will not be replicated or will not continue in ongoing or future studies or trials involving our product candidates;
the scope, progress, expansion, and costs of developing and commercializing our product candidates;
our expectations regarding our expenses and future revenue, the timing of future revenue, the sufficiency or use of our cash resources and needs for additional financing;
our expectations regarding competition;
our anticipated growth strategies;
our ability to attract or retain key personnel;
our commercialization, marketing, and manufacturing capabilities and strategy;
our ability to establish and maintain development and commercialization partnerships;
our ability to successfully integrate acquisitions into our business;
our expectations regarding federal, state, and foreign regulatory requirements;

20


 

political, economic, legal, social and health risks, public health measures, and war or other military actions, that may affect our business, results of operations and financial position, or the global economy;
regulatory developments in the United States and foreign countries;
our ability to obtain and maintain intellectual property protection for our product candidates; and
the anticipated trends and challenges in our business and the market in which we operate.

All written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in any annual, quarterly, or current reports that we may file with the Securities and Exchange Commission (SEC).

We encourage you to read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” as well as our unaudited condensed consolidated financial statements contained in this quarterly report on Form 10-Q. We also encourage you to read our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 7, 2024 (2023 Annual Report), and which contains a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in our 2023 Annual Report, other unknown or unpredictable factors also could affect our results. Therefore, the information in this report should be read together with other reports and documents that we file with the SEC from time to time, including Forms 10-Q, 8-K, and 10-K, which may supplement, modify, supersede, or update those risk factors. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that our results will lead to the expected consequences to, or effects on us. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Overview

Aldeyra Therapeutics, Inc., including its wholly-owned subsidiaries (we, us, or the Company), is a biotechnology company devoted to discovering innovative therapies designed to treat immune-mediated and metabolic diseases. We are developing a novel pharmaceutical platform targeting a class of toxic endogenous small molecules known as RASP (reactive aldehyde species) that are associated with many inflammatory, metabolic, and neurodegenerative diseases. Our RASP modulator product pipeline includes ADX-629, a novel orally administered RASP modulator in clinical development for moderate alcohol-associated hepatitis and Sjögren-Larsson Syndrome. Our preclinical RASP platform includes ADX-246, ADX-248, and other drug candidates in development for inflammatory and metabolic diseases. The validity of the RASP platform is supported by reproxalap, our first-in-class product candidate in late-stage development for the treatment of dry eye disease. Reproxalap has demonstrated broad-based, rapid-onset activity and consistent safety across a number of Phase 2 and Phase 3 clinical trials. We have additional product candidates in development, including ADX-2191, which is in clinical development for the treatment of retinitis pigmentosa, a rare retinal disease characterized by inflammation and vision loss. ADX-2191 has received Orphan Drug Designation for the treatment of retinitis pigmentosa. Our development pipeline, as of the date of filing of this quarterly report on Form 10-Q is illustrated below.

 

img130884783_0.jpg 

21


 

 

On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie Inc. (AbbVie), pursuant to which we granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United States to facilitate a collaboration with us to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by us in the field of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise controlled by us in the fields of ophthalmology and immunology before such data is shared with any other third party (the Collaboration Agreement). AbbVie paid us a non-refundable payment of $1 million in consideration of the Option (the Option Payment).

 

On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise Period Extension) by paying us a non-refundable payment of $5 million (the Option Extension Fee). As a result of the Exercise Period Extension, AbbVie may exercise the Option by delivering written notice to us at any time during the period following the Option Agreement Effective Date until the earlier of (a) the tenth (10th) business day after the date, if any, that we receive approval from the U.S. Food and Drug Administration of the NDA for reproxalap in dry eye disease (the FDA Decision) and (b) the date that is eighteen (18) months after the Option Agreement Effective Date. If the Collaboration Agreement is entered into, the Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.

 

Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100 million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, we would be eligible to receive up to approximately $300 million in regulatory and commercial milestone payments, inclusive of a $100 million milestone payment payable if the FDA Decision is received prior to or after the execution of the Collaboration Agreement. In the United States, we would share profits and losses with AbbVie from the commercialization of reproxalap according to a split of 60% for AbbVie and 40% for us. Outside of the United States, we would be eligible to receive tiered royalties on net sales of reproxalap. As of April 30, 2024, AbbVie has not exercised the Option.

 

All of our development plans and timelines are subject to adjustment depending on recruitment rate, regulatory review, preclinical and clinical results, funding, and other factors that could delay the initiation, completion, or reporting of clinical trials. Regulatory review timelines are flexible and subject to change based on the regulator’s workload and other potential review issues. The timing of ongoing clinical trials depends, in part, on the availability of clinical research facilities and staffing, and the ability to recruit patients.

 

As we continue to execute on our strategy of expanding our product candidate pipeline, we may license or acquire new immune-modulating approaches with novel therapeutic potential. In January 2019, we acquired Helio Vision, Inc. (Helio) and thereby obtained rights to ADX-2191.

 

We have no products approved for sale in the United States or elsewhere. We will not receive any revenue from sales of our product candidates that we develop until we obtain regulatory approval. We intend to commercialize our products, if approved for sale, directly or through collaborations. Although we may receive commercial and license revenue in the future, we have to date primarily funded our operations through the sale of our common stock, convertible preferred stock, convertible promissory notes, warrants, and borrowings under debt facilities. We will need to raise additional capital in the form of debt or equity or through partnerships to fund additional development of our product candidates, and we may in-license, acquire, or invest in complementary businesses or products. In addition, contingent on capital resources, we may augment, diminish, or otherwise modify the clinical development plan described herein.

 

In March 2021, we entered into an Open Market Sales Agreement SM with Jefferies LLC (Jefferies), as sales agent (2021 Jefferies Sales Agreement), under which we had the ability to offer and sell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $100.0 million. As of March 31, 2024, no sales had been made pursuant to the 2021 Jefferies Sales Agreement and no additional shares of common stock may be sold under the 2021 Jefferies Sales Agreement as of April 24, 2024.

 

On January 28, 2019, we acquired Helio. As a result of the acquisition, we have issued an aggregate of 1,407,006 shares of common stock to the former securityholders and an advisor of Helio. Subject to the conditions of the acquisition agreement, we are contingently obligated to make additional payments to the former securityholders of Helio as follows: (a) $10.0 million of common stock following approval by the FDA of an NDA for the prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the closing date; and (b) $2.5 million of common stock following FDA approval of an NDA for an indication (other than proliferative vitreoretinopathy or a substantially similar label) prior to the 12th anniversary of the closing date, provided that in no event shall we be obligated to issue more than 5,248,885 shares of common stock in the aggregate in connection with the acquisition. Additionally, in the event of certain change of control or divestitures by us, certain former convertible noteholders of Helio will be entitled to a tax gross-up payment in an amount not to exceed $1.0 million in the aggregate.

22


 

In March 2019, we entered into the Hercules Credit Facility, which provided for a term loan of up to $60.0 million, $15.0 million of which has been funded as of March 31, 2024. In April 2021, the Hercules Credit Facility was amended to, among other things, increase the amount which may become available for draw-down prior to May 2023, subject to the satisfaction of certain conditions contained therein, from $10.0 million to $20.0 million. In December 2022, the Hercules Credit Facility was further amended to, among other things, (i) extend the expiration of the period in which interest-only payments on borrowings from May 1, 2023 to May 1, 2024; (ii) extend the Maturity Date from October 1, 2023 to October 1, 2024; and (iii) extend the availability of the $20.0 million draw-down from May 2023 to May 2024, subject to the satisfaction of certain conditions contained therein. The Hercules Credit Facility contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, and maintain insurance coverage. Negative covenants include, among others: restrictions on transferring any part of our business or intellectual property; incurring additional indebtedness; engaging in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our assets, in each case subject to customary exceptions. On April 29, 2024, the Hercules Credit Facility was further amended to, among other things, extend the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2024 to October 1, 2024. The Hercules Credit Facility, as amended, is described in Note 9 to the notes to the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. As of March 31, 2024, $15.0 million was outstanding under the Hercules Credit Facility.

Research and development expenses

We expense all of our research and development expenses as they are incurred. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred. Research and development expenses primarily include:

non-clinical development, preclinical research, and clinical trial and regulatory-related costs;
expenses incurred under agreements with sites and consultants that conduct our clinical trials; and
employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.

To date, substantially all of our research and development expenses have been incurred in connection with reproxalap and ADX-2191, as well as the proof of concept trials with ADX-629. We expect our research and development expenses to increase for the foreseeable future as we advance ADX-246, ADX-248 and other compounds through preclinical and clinical development. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates. Clinical development timelines, the probability of success, and development costs can differ materially from expectations. We may never succeed in achieving marketing approval for our product candidates. The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

per patient trial costs;
the number of sites included in the trials;
the countries in which the trials are conducted;
delays of, or other effects on, clinical trials resulting from public health measures, and war or other military actions, or for other reasons;
the length of time required to enroll eligible patients;
the design of the trials;
the cost of drug manufacturing;
the number of patients that participate in the trials;
the number of doses that patients receive;
the costs of assay development, assays, or other assessment of clinical trial endpoints;
the cost of vehicle or active comparative agents used in trials;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring or other studies or clinical trials requested by regulatory agencies;
the duration of patient follow-up;

23


 

the phase of development the product candidate is in; and
the efficacy and safety profile of our product candidates.

Included in research and development are expenses associated with asset acquisitions. Assets purchased in an asset acquisition transaction are expensed as in-process research and development unless the assets acquired are deemed to have an alternative future use. Acquired in-process research and development payments are immediately expensed, and include upfront payments, as well as transaction fees and subsequent milestone payments. Development costs incurred after the asset acquisition are expensed as incurred.

We do not expect reproxalap or any of our other product candidates to be commercially available, if at all, before at least the first half of 2025.

General and administrative expenses

During the three months ended March 31, 2024 and 2023, our general and administrative expenses consisted primarily of employee-related expenses, including benefits and stock-based compensation for our full-time employees. Other general and administrative expenses include insurance premiums, consulting including pre-commercial costs, and professional fees for auditing, tax, investor relations, and legal services, including patent-related costs. We expect that general and administrative expenses will increase in the future as we expand our operating activities, continue to incur additional costs associated with being a publicly-traded company, and maintaining compliance with exchange listing and SEC requirements. These increases will likely include higher consulting costs, fees for commercializing our product candidates, legal fees, accounting fees, insurance premiums, and fees associated with investor relations.

Other income (expense)

Total other income (expense) consists primarily of interest income we earn on interest-bearing accounts and interest expense incurred on our outstanding debt.

Comprehensive loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources. For the three months ended March 31, 2024, comprehensive loss is equal to our net loss of $8.1 million and our net unrealized loss on marketable securities of $3.0 thousand. For the three months ended March 31, 2023, comprehensive loss is equal to our net loss of $15.6 million and $0.1 million of losses on marketable securities reclassified to net loss.

Critical Accounting Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

There were no material changes to our critical accounting estimates during the three months ended March 31, 2024, as compared to those described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report. It is important that the discussion of our operating results that follow be read in conjunction with the critical accounting policies disclosed in our 2023 Annual Report.

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Results of Operations

We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, including the progress of our research and development efforts, the timing and outcome of clinical trials, and regulatory requirements. Our limited operating history makes predictions of future operations difficult or impossible. Since our inception, we have incurred significant losses.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Research and development expenses. Research and development expenses were $6.2 million for the three months ended March 31, 2024, compared to $11.2 million for the three months ended March 31, 2023. The decrease of $5.0 million was primarily related to a decrease in external clinical development costs, personnel costs, and consulting expenditures.

General and administrative expenses. General and administrative expenses were $3.2 million for the three months ended March 31, 2024, compared to $5.6 million for the three months ended March 31, 2023. The decrease of $2.4 million was primarily related to lower personnel costs, consulting expenditures, and legal costs.

Other income (expense). Total other income (expense), net, was $1.3 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively. The increase in net other income of $0.1 million was due to higher interest income for the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

 

Liquidity and Capital Resources

We have funded our operations primarily from the sale of equity securities and convertible equity securities and borrowings under credit facilities. Since inception, we have incurred operating losses and negative cash flows from operating activities and have devoted substantially all our efforts to research and development. At March 31, 2024, we had total stockholders’ equity of approximately $113.4 million , and cash, cash equivalents, and marketable securities of $133.0 million. During the three months ended March 31, 2024, we had a net loss of approximately $8.1 million. We expect to generate operating losses for the foreseeable future.

In March 2021, we entered into the 2021 Jefferies Sales Agreement under which we had the ability to offer and sell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $100.0 million. As of March 31, 2024, no sales had been made pursuant to the 2021 Jefferies Sales Agreement and no additional shares of common stock may be sold under the 2021 Jefferies Sales Agreement as of April 24, 2024.

In March 2019, we entered into the Hercules Credit Facility (the Loan and Security Agreement), pursuant to which a term loan of up to an aggregate principal amount of $60.0 million may be made available to us. The Loan and Security Agreement provides for (i) an initial term loan advance of up to $5.0 million at our option, which expired unutilized on April 15, 2019; (ii) three additional term loan advances of up to $15.0 million each, at our option, available to us upon the occurrence of certain funding conditions prior to September 30, 2019 (2019 Tranche), March 31, 2020 (2020 Tranche), and March 31, 2021 (2021 Tranche); and (iii) a final additional term loan advance (Fourth Loan Tranche) of up to $10.0 million prior to December 31, 2021, at our option, subject to approval by Lender’s investment committee. We drew down the 2019 Tranche in full in September 2019 and the 2020 Tranche and the 2021 Tranche expired unutilized prior to us satisfying the funding conditions for such tranche. On April 20, 2021, we entered into the First Amendment (First Amendment) to Loan and Security Agreement with Hercules. The First Amendment, among other things, (i) increased the Fourth Loan Tranche from $10.0 million to $20.0 million and extended the deadline for drawing down the Fourth Loan Tranche to July 1, 2022; (ii) lowered the variable per annum rate of interest on borrowings under the Loan and Security Agreement to the greater of (a) the Prime Rate plus 3.10% or (b) 8.60%; (iii) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are required from May 1, 2021 to July 1, 2022; and (iv) following the satisfaction of certain conditions, which conditions were satisfied in April 2021, further extended the expiration of the interest-only period and the deadline for drawing down the Fourth Loan Tranche to May 1, 2023. On December 22, 2022, we entered into the Second Amendment (Second Amendment) to the Loan and Security Agreement with Hercules, which became effective as of December 31, 2022 (Second Amendment Effective Date). The Second Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2023 to May 1, 2024; (ii) extended the Maturity Date from October 1, 2023 to October 1, 2024 (Maturity Date); (iii) extended the availability of the Fourth Loan Tranche commitment of $20 million from May 1, 2023 to May 1, 2024; and (iv) amended the Prepayment Charge (as defined therein) to equal 0.75% of the amount prepaid during the 12-month period following the Second Amendment Effective Date, and 0% thereafter. The ability to draw the Fourth Loan Tranche remains conditioned on approval by the Lenders’ investment committee. In addition, a supplemental end of term charge of $292,500 (Supplemental End of Term Charge) shall be due on the earlier of (A) the Maturity Date, as amended, or (B) repayment of the aggregate amount of advances under the Loan and Security Agreement. The initial end of term charge of $1,042,500 (End of Term Charge) was paid on October 2, 2023. On April 29, 2024, we entered into the Third Amendment (Third Amendment) to the Loan and Security Agreement with Hercules. The Third Amendment, among other things, extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2024 to October 1, 2024. Repayment of the aggregate outstanding principal balance of the term loan, in monthly installments, commences upon expiration of the interest-only period and continues through the Maturity Date.

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The Loan and Security Agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, and maintain insurance coverage. Negative covenants include, among others: restrictions on transferring any part of our business or intellectual property; incurring additional indebtedness; engaging in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our assets, in each case subject to customary exceptions. As of March 31, 2024, $15.0 million was outstanding under the Hercules Credit Facility.

 

On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie Inc. (AbbVie), pursuant to which we granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United States to facilitate a collaboration with us to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by us in the field of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise controlled by us in the fields of ophthalmology and immunology before such data is shared with any other third party (the Collaboration Agreement). AbbVie has paid us a non-refundable payment of $1 million in consideration of the Option (the Option Payment).

 

On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise Period Extension) by paying us a non-refundable payment of $5 million (the Option Extension Fee). As a result of the Exercise Period Extension, AbbVie may exercise the Option by delivering written notice to us at any time during the period following the Option Agreement Effective Date until the earlier of (a) the tenth (10th) business day after the date, if any, that we receive approval from the U.S. Food and Drug Administration of the NDA for reproxalap in dry eye disease (the FDA Decision) and (b) the date that is eighteen (18) months after the Option Agreement Effective Date. If the Collaboration Agreement is entered into, the Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.

 

AbbVie may exercise the Option by delivering the Option Exercise Notice to us at any time during the period following the Option Agreement Effective Date until the earlier of (a) the tenth (10th) business day after the FDA Decision Date and (b) the date that is eighteen (18) months after the Option Agreement Effective Date.

 

Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100 million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, we would be eligible to receive up to approximately $300 million in regulatory, and commercial milestone payments, inclusive of a $100 million milestone payment payable if the FDA Decision is received prior to or after the execution of the Collaboration Agreement. In the United States, we would share profits and losses with AbbVie from the commercialization of reproxalap according to a split of 60% for AbbVie and 40% for us. Outside of the United States, we would be eligible to receive tiered royalties on net sales of reproxalap.

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of March 31, 2024, will be sufficient to fund our currently projected operating expenses and debt obligations beyond the end of 2026, including continued early and late-stage development of our product candidates in immune-mediated and metabolic diseases. We base our projections of operating capital requirements on our current operating plan, which includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development, and commercialization (as applicable) of product candidates, we are unable to estimate the exact amount of our working capital requirements. We will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources in order to carry out all of our planned research and development activities and regulatory activities; commence or continue ongoing commercialization, including manufacturing, sales, marketing and distribution for our product candidates; or conduct any substantial additional development requirements requested by the FDA. At this time, due to the risks inherent in the drug development process, we are unable to estimate with any certainty the costs we will incur in the continued clinical development of reproxalap, and our other product candidates. Subsequent trials initiated at a later date will cost considerably more, depending on the results of our prior clinical trials, and feedback from the FDA or other third parties. Accordingly, we will continue to require substantial additional capital to continue our clinical development and potential commercialization activities. The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

the costs, timing, and outcome of regulatory review of reproxalap, including any additional trials the FDA or other regulatory agencies may require for approval or label expansion;
the progress, costs, and results of any clinical activities for regulatory review of reproxalap outside of the United States;
the exercise, if any, of the Option;
the costs and timing of process development and manufacturing scale‑up activities associated with reproxalap;

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the costs of commercialization activities for reproxalap if we receive marketing approval and pre‑commercialization costs for reproxalap incurred prior to receiving, any such marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities;
assuming receipt of marketing approval, the amount of revenue received from commercial sales of reproxalap or any other product candidates;
the terms and timing of establishing collaborations, license agreements, and other partnerships on terms favorable to us;
the type, number, scope, progress, expansion costs, results, and timing of our clinical trials of any product candidates that we are pursuing or may choose to pursue in the future;
costs associated with any other product candidates that we may develop, in-license, or acquire, including potential milestone or royalty payments;
costs incurred in defending ourselves in any legal proceedings that we may be subject to; and
costs of obtaining, maintaining, and enforcing our patents and other intellectual property rights.

We may need or desire to obtain additional capital to finance our operations through debt, equity, or alternative financing arrangements. We may also seek capital through collaborations or partnerships with other companies. The issuance of debt could require us to grant additional liens on certain of our assets that may limit our flexibility. If we raise additional capital by issuing equity securities, the terms and prices for these financings may be much more favorable to the new investors than the terms obtained by our existing stockholders. These financings also may significantly dilute the ownership of our existing stockholders. We are in a period of economic uncertainty, inflation, and capital markets disruption, which has been significantly impacted by adverse developments affecting the financial services industry, geopolitical instability due to, among other things, the continued hostilities between Russia and Ukraine and Hamas' attack against Israel and the ensuing conflict. In addition, the disruption in the capital markets could make any financing more challenging, and there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all. If we are unable to obtain additional financing, we may be required to reduce the scope of our future activities, which could harm our business, financial condition, and operating results. There can be no assurance that any additional financing required in the future will be available on acceptable terms, if at all.

We will continue to incur costs as a public company, including, but not limited to, costs and expenses for directors' fees; increased directors' and officers' insurance; investor relations fees; expenses for compliance with the Sarbanes-Oxley Act of 2002 and related to rules implemented by the SEC and Nasdaq, on which our common stock is listed; and various other costs. The Sarbanes-Oxley Act of 2002 requires that we maintain effective disclosure controls and procedures and internal controls.

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023:

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Net cash used in operating activities

 

$

(9,972,687

)

 

$

(9,443,818

)

Net cash (used in) provided by investing activities

 

 

(30,376,620

)

 

 

30,000,000

 

Net cash provided by financing activities

 

 

18,191

 

 

 

52,559

 

Net (decrease) increase in cash and cash equivalents

 

$

(40,331,116

)

 

$

20,608,741

 

 

Operating Activities. Net cash used in operating activities was $10.0 million for the three months ended March 31, 2024, compared to net cash used in operating activities of $9.4 million for the same period in 2023. The primary use of cash was to fund our operations. The increase in the amount of cash used in operating activities for the three months ended March 31, 2024 as compared to 2023 was principally due to a decrease in net loss, primarily from research and development activities; changes in accrued expenses, due to the amount and timing of payments for research and development activities; and changes in prepayments, due to timing of payment and collection of a receivable for the three months ended March 31, 2024 compared to the same period in 2023.

Investing Activities. Net cash used in investing activities was $30.4 million for the three months ended March 31, 2024, and $30.0 million provided by investing activities for the three months ended March 31, 2023. Net cash used in investing activities related

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to purchases of marketable securities for the three months ended March 31, 2024. Net cash provided by investing activities related to maturities of marketable securities for the three months ended March 31, 2023.

Financing Activities. Net cash provided by financing activities was $18.2 thousand for the three months ended March 31, 2024, compared to $52.6 thousand for the three months ended March 31, 2023. The net cash provided by financing activities for the three months ended March 31, 2024 and 2023 consisted of stock purchases under the employee stock purchase plan.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Because we are allowed to comply with the disclosure obligations applicable to a "smaller reporting company," as defined by Rule 12b-2 of the Exchange Act, with respect to this Quarterly Report on Form 10-Q, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our Disclosure Committee and management, including our Chief Executive Officer and Interim Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of the end of the period covered by this report. Based on our management’s evaluation (with the participation of our Chief Executive Officer and our Interim Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer and our Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

 

On July 31, 2023, a purported stockholder filed a putative class action lawsuit (the Securities Class Action) in the U.S. District Court for the District of Massachusetts, against us and certain current and former officers, captioned Juliana Paice v. Aldeyra Therapeutics, Inc., et al. (No. 23-cv-11737). On January 2, 2024, the lead plaintiff filed an amended complaint. The lawsuit alleges violations by the defendants of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The plaintiff alleges that the defendants made false or misleading statements or failed to disclose certain information concerning (i) the NDA for and the prospects of ADX-2191 for the treatment of primary vitreoretinal lymphoma and (ii) the NDA for and the prospects of reproxalap for the treatment of dry eye disease. The lawsuit seeks, among other things, compensatory damages on behalf of herself and all persons and entities that purchased or otherwise acquired our securities between January 7, 2021, and October 16, 2023, as well as attorneys’ fees and costs. On March 4, 2024, defendants filed a motion to dismiss the amended complaint, and the plaintiff filed its opposition to the motion on April 18, 2024. We dispute the plaintiff's claims and intend to vigorously defend the suit. At this time, we cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this matter.

 

On October 25, 2023, a purported stockholder filed a derivative complaint in Middlesex Superior Court of the Commonwealth of Massachusetts, captioned Evan Leglar v. Todd C. Brady, et al. (No. 2381-cv-02980), against certain of our executive officers and directors, and naming us as a nominal defendant. The derivative complaint alleges, purportedly on behalf of us, breaches of fiduciary duty and unjust enrichment claims against all defendants. The claims are based on substantially identical allegations as the complaint in the Securities Class Action. The lawsuit seeks, among other things, an award of damages and restitution in favor of us, certain changes to our corporate governance, and attorneys’ fees and costs. On November 14, 2023, the plaintiff voluntarily dismissed all claims without prejudice.

 

On March 7, 2024, a purported stockholder of the Company filed a derivative complaint in the U.S. District Court for the District of Massachusetts, captioned Fawaz Al-Jaljouli v. Todd C. Brady, et al. (No. 24-cv-10585), against certain of the Company’s executive officers and directors, and naming the Company as a nominal defendant. The derivative complaint alleges, purportedly on behalf of the Company, breach of fiduciary duty and violations of Section 14(a) of the Securities Exchange Act of 1934. The claims are based on substantially identical allegations as the complaint in the Securities Class Action. The lawsuit seeks, among other things, an award of damages and restitution in favor of us, certain changes to our corporate governance, and attorneys’ fees and costs. At this time, we cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this matter.

 

In addition, from time to time, we are subject to litigation and claims arising in the ordinary course of business but, except as stated above, we are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceedings against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

 

ITEM 1A. Risk Factors.

Our business is subject to numerous risks. You should carefully consider the risks described below together with the other information set forth in this quarterly report on Form 10-Q, which could materially affect our business, financial condition, and future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to